In 2024, the sovereign debt market was characterised by the effects of monetary and international policy  on the economy. Investor demand for Finnish government bonds remained consistent throughout.

In 2024, the State Treasury successfully carried out an issuance programme of EUR 42.8 billion. Net borrowing amounted to EUR 12.6 billion. At the end of 2024, Finland’s central government debt totalled EUR 169.4 billion, or 61.2% of GDP (57.1% in 2023). General government debt in relation to GDP totalled 82.5% (77.1% in 2023).

Monetary policy mattered in the sovereign debt capital markets in 2024. This was particularly evident towards the end of the year, as the EGB yield spreads relative to swaps widened significantly. According to Director of Finance Anu Sammallahti, this change in relative pricing may be attributable to the ECB balance sheet reduction, which is set to begin this year.

In 2025, the net sovereign debt issuance in the euro government space will be over EUR 400 billion, with almost the same amount of debt maturing on the ECB balance sheet and proceeds not reinvested.

“This gives credence to the idea that’s been floated since the rapid rise in interest rates, i.e. that the surge of supply was digested by the market with adjustment in pricing”, Sammallahti estimates.

In addition to monetary policy, the government bond market in 2024 was impacted by various policy changes affecting the economy – and going forward, there’s no shortage of themes to follow: what direction will US foreign policy take, will European governments be able to cope with the effects of political polarisation, not to mention the ongoing wars – will they end, or continue?

“It feels we’re facing various turning points, but at the same time, the EGB market seems very healthy. There’s certainly a lot of supply, but a lot of demand as well,” Sammallahti notes.

Read the review at treasuryfinland.fi/annualreview2024

Investors look for signs of economic growth

In 2024, investor demand for Finnish government bonds remained consistent and rational. Fixed income investors appreciate strict fiscal policy, but given the lagging economic growth prospects, Finland’s debt-to-GDP ratio has been on the rise during the past couple of years.

“Finland has a high credit rating, but the outlook of debt supply also plays a role in relative pricing, especially among euro-area peers,” Sammallahti explains.

To highlight the medium-term growth potential of the Finnish economy, the Debt Management Annual Review 2024 includes two feature articles. Professor Mika Maliranta argues that a solid foundation for future economic and productivity growth has been brewing under the surface, paying special attention to the wealth of growth-oriented small and medium-sized companies that have increased their investments to R&D since the early 2010s. Meanwhile, economist and consultant Roger Wessman takes a look at Finland’s latest population forecast, where the dependency ratio is now projected to decline over the next decade. If net migration continues to exceed previous expectations, like it has for the past couple of years, it could boost Finland’s potential growth rate by up to half a percentage point.

“When you have a broad front of growth-oriented companies applying cutting-edge technology, it improves the chances that there will be major successes among them. And if Finland’s demographic outlook turns out to be brighter than previously expected, we can safely say that the factors supporting growth are there.”

Positive developments were also witnessed in the Finnish government bond market where, in addition to solid investor demand, the secondary market trading volumes of the Finnish bonds increased from last year. In other words, the liquidity of the Finnish government bonds remained at a good level. Monetary policy cycles, i.e. the realised and expected rates cuts may also explain some of these trends.

“Our Primary Dealers have done a fantastic job in keeping us on the investors’ radars”, Sammallahti notes.

Finland continues to act decisively

The world has, nevertheless, become a more precarious place. According to Sammallahti, the markets tend to price some risks more thoroughly than others, but what could impact Finland’s export-driven economy the most are the effects of the various impending or realised risks on the real economy.

What matters, though, is that Finland has shown determination of tackling the issues at hand with decisive action and planning in many policy segments – like in economic, energy and defence policies.

“In economic policy, this means that the debt sustainability is taken seriously in order to secure the future of the Finnish welfare state. In energy production, Finland is transitioning away from the use of fossil fuels and boosting our self-sufficiency by increasing the supply of clean and renewable energy – in fact, we’re practically self-sufficient in electricity production. And when it comes to defence, Finland has always maintained its own capabilities. We’ve never stopped investing in it.”

Debt Management Annual Review 2024 summarises the funding and liquidity management operations of Finland’s central government in 2024. This year, the publication also includes thematic articles on the central government debt management strategy update and the currency hedging completed by the State Treasury for the purchase of Finland’s F-35 fighter jets.

Debt Management Annual Review for 2024

Further information: Anu Sammallahti, Director of Finance, tel. +358 29 550 2575, anu.sammallahti@valtiokonttori.fi

• Central government borrowing and debt management 2024 in numbers (2023):

  • Gross borrowing: EUR 42.8 billion (EUR 42.3 billion)
  • Net borrowing: EUR 12.6 billion (EUR 14.2 billion)
  • Emissions: 83 (79)
  • Average yield on Finland’s 10-year RFGB benchmark bond: 2.85 % (3.06 %)
  • Effective cost of central government debt at the end of the year: 2.01 % (2.10 %)
  • Average fixing of central government debt: 4.8 years (4.4 years)
  • Average maturity of central government debt: 7.75 years (7.38 years)
  • Interest expenditure of central government debt: EUR 3.2 billion (EUR 2.3 billion)
  • Total volume of secondary market turnover: EUR 121.3 billion (EUR 87.6 billion)